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Tuesday, September 16, 2014

Economic Growth is Slowing Down

I found this a few months ago, and I think a good compliment to last time where we saw that innovation is slowing down because the low hanging fruits have been harvested and technology, like everything else, has diminishing returns at the margin.

It basically describes how if you extrapolated the economic growth of the past into the future, you would be seeing growth rates very different than today. In fact, growth is slowing down.

Think back (if you can) to 1979. (I myself can barely do so.) Back then real GDP per capita was double what it had been 28 years before, in 1951. And in 1951 real GDP per capita was double what it had been 28 years before in 1923. Before then growth had been slower: the previous doubling had taken 16 extra years, and takes us back not to 28 years before in 1895 but 44 years before in 1879. And the doubling before that takes us back 49 years to 1830. And my guess is that British settlement in America saw perhaps one more doubling between 1750 and 1830 or so, before which living standards were likely to have been constant. The overall picture is one of accelerating geometric growth since the beginnings of the Industrial Revolution: doubling times of 80 years, then 49, then 44, then 28, and then 28. A techno-realist would have expected a further doubling to $57,388 in 28 years–from 1979 to 2007–as 28-year doubling appeared to be a feature of the modern mass-production research-and-development-based American economy. And a techno-optimist might have speculated that ever-shorter doubling times were a feature of ever higher-tech economies.

They would have been disappointed. 2007 saw American real GDP per capita not at $57,388 but $49,310.6–a 16% gap relative to reasonable expectations as of 1979. And, of course, after 2007 things really went into the toilet: Projecting growth forward from 1923, 1951, and 1979 to 2014 would have led us to expect a 2009-dollar real GDP level right now of $68,246.2. We are going to have $50,295.0–a 35.7% gap.

As of now, the missing growth since 1979–the missing growth, taking no account of distribution, taking an-extra-dollar-for-billionaires-is-as-good-as-an-extra-dollar-for-everybody-else–amounts to more than one-third of the level of our current prosperity. And when we compare the $28,694 real GDP per capita level of 1979 with the $50,295 we have today and the $68,246.2 that is the extrapolated 1923-1951-1979 trend–well, we have had barely as much as half the economic growth since 1979 that back in 1979 we expected.